As CMHC approaches its $600 Billion cap on insured mortgages, industry observers have been watching Ottawa closely. In previous situations where the National Mortgage insurer has approached its cap, the ministry of finance has consistently raised the limit to keep up with the growing economy. The difference today is the government’s focus on reducing consumer debt. Late last week Jim Flaherty suggested that this time they would hold firm forcing the insurer to limit the amount of mortgage insurance it issues.
The good news is that CMHC is prioritizing its limited supply of insurance to high ratio mortgage. This means first time borrowers with 5% down are not likely to be affected. Similarly, those of us with less than 20% down will still be able to access mortgage insurance as before. So where are they planning to cut back? CMHC has already signaled that it will limit the amount of bulk insurance it offers to lenders looking to bulk insure portfolios of conventional mortgages (mortgages with more than 20% equity). This may not sound like an important factor, but it will severely limit the amount of mortgage liquidity in the marketplace. As a result, we can expect to see fewer lenders competing for your business as well as the elimination of programs for self-employed, new to Canada and investment property mortgages.
At the end of the day, the winners will be the big banks and credit unions. They aren’t as reliant on bulk insurance to provide liquidity. The bad news for mortgage borrowers is fewer options, reduced programs and higher mortgage rates. This hardly seems like the right answer.